Intel added, however, that its business of selling chips for servers, in contrast to the PC market, is “meeting expectations.”

The Street today reflects on what it had broadly been predicting for weeks now. Intel shares themselves are not fairing terribly, falling just 93 cents, or 3.7%, to $24.16.

Citigroup’s Glen Yeung, who had been one of the most vocal proponents of the view Intel would cut, this morning writes that after reviewing the various feedback during Citigroup’s annual technology conference in New York this week, “We anticipate the worst 2H for PC sales since inception.”

Yeung hasn’t yet qualified that — nor quantified it, for that matter — but he does think that not just economic weakness but also confusion over the arrival of Microsoft‘s (MSFT) Windows 8 operating system, on October 26th, and competition from tablet computers, such as Apple‘s (AAPL) iPad, is eating into PC results.

Another individual who called early on for Intel to warn was Drake Johnstone of Davenport & Co. This morning he reiterates a Neutral rating on the shares, writes “We expect PC demand to remain weak over the next few quarters as consumers and businesses are less inclined to purchase new computers in a weak global economic environment.”

“In addition, we believe that many consumers and businesses are uninspired by PCs and prefer exciting new smart phones and tablets.”

Davenport cut his 2012 full-year view to $53.34 billion in revenue and $2.14 per share in EPS from a prior $54.56 billion and $2.30 per share.

A similarly dour note comes from Christopher Caso of Susquehanna Financial Group, who writes that this is “more than just a stall” in demand. There are structural changes and “demand destruction” going on, he thinks:

By now, the 3Q PC weakness was well understood given Street commentary, and weak comments from the Taiwan ODMs. But we think this weakness is more than simply a stall ahead of the new product cycle, and our conversation with management tends to support this view. In speaking to management after the preannouncement, while they had expected some restocking in 3Q ahead of the product launches, it instead has seen destocking. Perhaps most worrisome, INTC believes there has been some demand destruction – emerging markets, small and medium businesses and the government sector have all weakened. Data center is the only segment that is in-line with expectations. We don’t expect to hear much additional near-term commentary during next week’s Intel Developer Forum, where the focus will be on longer term product cycles and roadmaps.

FBR Capital’s Craig Berger, who rates Intel shares Market Perform, this morning cut his price target to $26 from $30, writing that the Street wants to know how much is the economy and how much is competition from phones and tablets.

But regardless of that, Intel’s generally healthy processor business can’t offset the fact the company has failed to make inroads in areas such as phones:

We recently wrote that PC and storage OEM inventory days are now 25% above the 3Q09 all-time trough, with an uptrend clearly intact and with corrective actions now likely. Investors will likely focus on how much of this weakness is demand driven, versus Win8 production weakness, versus channel inventory declines, versus structural smartphone/tablet replacement bleed, with no clear answers available yet. Stepping back, Intel continues to have a very profitable PC processor franchise and is pressing its bets in manufacturing, process (14nm ramping soon), and technology development (ASML deal) to drive global best-in-class production costs and respectable margins. Unfortunately, Intel’s execution outside of manufacturing and x86 processor design is less robust as key opportunities contribute only modestly (cellular losing momentum, no 4G LTE, no baseband/apps processor integration), potentially leaving behind a 0%−5% annual unit growth business. Thus, we highlight BRCM, QCOM, or LSI as preferred growth stocks with more fundamental tailwinds.

Berger cut his full-year outlook to $53.58 billion in revenue and $2.25 per share in profit, from a prior $55.72 billion and $2.50 per share.

Joanne Feeney of Longbow Research reiterates a Buy rating and cut her price target from $31 to $28, writing that Intel is dealing with a build-up in supply for the “ultrabook” laptops that haven’t not sold as the company would have hoped:

We see this revision as a reflection of a 1H12 effort by Intel to create inventory in the channel to help speed builds of new Ultrabook models. With enthusiasm for Ultrabooks looking muted for 2012, that inventory is unnecessary and the supply chain is taking steps to correct levels. This is likely to be comprised mostly of Ivy Bridge CPUs, which just launched this year. Intel’s delay of Haswell—which we learned about last week and included in this morning’s note—likely reflects the delay in the uptake of Ivy Bridge on macro weakness and the slow roll-out of Ultrabooks. As we clarified in our earlier note, Ivy Bridge is a strong product and the delay of its successor Haswell may be a strategic move by Intel to keep the value of Ivy Bridge high.

Feeney emphasizes that Intel’s prospects in the server market are still good and that the PC weakness is not likely to carry over there. In fact, she sees Intel’s server prospects “accelerating” next year.

Feeney cut her 2012 view to $53.6 billion in revenue and $2.12 per share in profit, down from $56.2 billion and $2.42 per share.

Here are some other reports today:

Hans Mosesmann, Raymond James: Reiterates a Market Perform rating on Intel. “It confirms our belief that forward estimates were overly aggressive given an increasingly challenged PC environment. This was born out in the 8% reduction to the outlook that now assumes a 2% q/q decline in 3Q12, which is more consistent with others in the PC supply chain. While the company continues to execute in the data center (not a driver of the preannouncement), we believe the company has more to lose than gain in the upcoming PC/Server/Mobile battle vs. ARM as lower cost apps process players move upstream with the launch of Windows 8. While not expensive on an absolute basis at 11x our revised 2013 estimate and an attractive dividend yield of 3.6%, we see little to get shares moving in the near-term and remain on the sidelines.”

Abhey Lamba, Mizuho Securities: Reiterates a Buy rating on Apple shares and Neutral ratings on Dell (DELL) and Hewlett-Packard (HPQ). “We note that enterprise PC sales have been driving the market lately as companies need to move off from Windows XP by April 2014. It is possible that customers might start deploying Windows 7 on existing hardware instead of buying new
machines. In C2Q12, Microsoft estimated that commercial PC market grew
by 1% while consumer sales were down by 2%. We will continue to monitor
enterprise demand as slowdown in the segment could be a risk factor for our
assumptions of mid-single digit growth in 2013 while we expect 1% rise in
2012 primarily due to the Windows 8 launch in C4Q12.”

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Comment

There are 7 comments

SEPTEMBER 7, 2012 11:49 A.M.

MM wrote:

Analysts are hacks. Nevr ceases to amaze me that you continuously quote them.

Tablets are toys for the most part and PCs arent going anywhere.

SEPTEMBER 7, 2012 11:57 A.M.

@MM wrote:

amen. couldnt agree more.

SEPTEMBER 7, 2012 12:10 P.M.

Truth_hurts wrote:

@ MM and @MM

Tablet sales are predicted at 120M+ units this year. If even 20% are coming at the expense of PCs, and only the naive would believe it's any less than that, it's enough to wipe out 5% of wordwide PC growth. PC's will be around for a long time. But their days of high growth are likely over. The future growth curve belongs to tablets and smartphones, which has negative implications for both INTEL and MS since neither has been successful there.

SEPTEMBER 7, 2012 1:35 P.M.

Klippenstein wrote:

Don't forget that with shipment of Microsoft's Windows 8, Intel is now competing in the high end of the Tablet PC space that I read many of the 90% of worldwide microcomputer users have been waiting for. Further, while Intel is not yet a direct player, Windows 8 also brings Microsoft into the mainstream tablet market highest function for money products. These products are out Oct 26, 86 designs and counting (see http://www.microsoft.com/​en-us/news/presskits/oem/​imagegallery.aspx). Contrary to pessimistic writers above, I think this dawn will shine brighter and brighter for Microsoft (and Intel) and bring in a new day of the ubiquitous "Tablet PC." Apple will do fine even as it moves toward its sub 10% marketshare in these markets (as it did in Macs and is rapidly heading to in iPhones), but Andriod/Linux tablets will be left withonly crumbs, perhaps a niche market or two. So don't lose hope yet, it is often darkest before the dawn. Give time a year to tell the story.

SEPTEMBER 7, 2012 1:48 P.M.

Cube Monkey wrote:

You have to applaud Intel for revising. A decade ago, Intel used to revise earnings quickly, but when stock holders started to sue companies for inaccurate earnings statements, Barett, who was CEO at the time, decided that Intel would not play that game any more. Now it seems Intel will update earnings a month before end of quarter. I suspect that this "month before update" is regularly scheduled.

I've seen articles where pundits are saying that Intel does a lousy job of predicting earnings. If anything, I would agree Intel does a loust job of "agreeing" with the pundits but does a better than average job of predicting earnings. 90% of the time, they meet or beat their beginning of quarter projections. The guys are Market Watch are idiots to make such an assertion.

My gut still says that the US elections will have a huge impact on Q4 - good or bad...

SEPTEMBER 7, 2012 6:30 P.M.

Dan wrote:

@Klippenstein: Good satire! At least, I hope you were being satirical...

SEPTEMBER 10, 2012 3:00 P.M.

Klippenstein wrote:

@Dan. No satire intended. Let the games begin. Check back with me in a year.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.